The CERC has announced the draft (fourth) amendments of Deviation Settlement Mechanism & related matters regulations. The principal regulations came into effect in January 2014 followed by three amendments in December 2014, August 2015 and May 2016 in that order. The previous amendments were notified to solve issues related to grid operations the Deviation Settlement Mechanism (DSM) impact with respect to frequency due to emerging markets. The latest amendments talk about the limitations of the DSM price vector and recommendation for the same. According to the report prepared by an expert group consisting of representatives from CEA, POSOCO, CTU, and CERC suggestive measures have been given for bringing power system operation closer to the National Reference Frequency.

As per the report, the present DSM has design limitations and since the rates are designed by CERC the changing of rates takes time under the regulatory process and does not catch up with the change in prices in other market segments. The present DSM rates at 50 Hz (178 paise/unit) are linked to the variable charges of a pit-head thermal station whereas the highest DSM rate (824 paise/unit) is linked to the variable charges of the costliest generator (liquid fired). Ideally, the DSM price should capture the Value of Lost Load (VoLL) so that utilities procure adequately in advance so as to meet their universal service obligations.

Few amendments from the draft document are as below:

The definition of Area Clearing Price (ACP) & Day Ahead Market (DAM) is included in order to connect ACP & DAM to the DSM prices by considering the factor geography & transmission congestion.

The reference frequency band (49.85 Hz to 50.05 Hz) is proposed for the purpose of DSM price vector from the previous frequency band of (49.70 Hz and above).

The maximum ceiling limit applicable for average daily ACP discovered in the DAM segment of power exchange at 50.00 Hz is proposed to be 800 Paisa/kWh from 824 Paisa/kWh

The Day-ahead market price of the Power Exchange having a market share of 80% or more in energy terms on a daily basis is proposed to be taken into consideration for linking to the DSM price vector. If there is no single Power Exchange having a market share of 80% or more, the weighted average day-ahead price is proposed to be used for linking to the DSM price.

It is proposed to link the cap rates for generators using coal/lignite/ APM gas to the energy charges as billed for the previous month is proposed.

Reduction in the number of time blocks (from 12 to 6-time blocks) for a change of sign in case of sustained deviation in one direction is proposed.

Levy of an additional surcharge of 20% on the daily base DSM payable/receivable in case of violation of the stipulation regarding the change in sign.

It is proposed that the total deviation from schedule during a day should not be in excess of 3% of the total schedule for the drawee entities and 1% for the generators and in case of violation 20% of the daily base DSM payable/receivable be levied.